Will Verizon’s Open Source Innovation Succeed?
Up until late last year, Verizon was a closed network. And then, this:
In late November, Verizon Wireless said it would allow any device or software to run on its wireless network. It’s a reversal for the No. 2 U.S. wireless carrier, which had been known as the most protective in the industry.
Why the turnaround? And what does this say about the organizational character of Verizon?
Some say this is a response to Google:
After the November announcement, many saw the move as a reaction to
Google Inc.’s (GOOG) Android operating system - an open source platform designed to run on any phone.
Perhaps it is. But are they after the same market? As I wrote last year, Google wants open access to let people with bad/no wireline internet to access Google. It’s their primary strategic goal - “Make all the world’s information accessible to everyone.”
Verizon, on the other hand, is opening access to their information network as a way of innovating their business network - how they partner with others to the benefit of all. This is a huge about-face for Verizon.
In 1996, Verizon (then Bell Atlantic) was, along with all the other local exchange carriers (LECs), forced by law to allow competitors access to their wireline networks. The Telecommunications Act of 1996 granted competitors (CLECs) like Covad the ability to co-locate equipment in the LECs’ central offices, and lease telephone lines. Using this, CLECs also provided DSL service. Verizon’s ultimate response was to force the FCC to ‘back off’ on enforcement of the Telecom Act - or else they’d never upgrade their wireline network to fiber optics. The FCC capitulated, and now Verizon is rolling out their ‘FIOS’ fiber optics service, free from the need to grant competitors access.
So if they won’t do it with their wireline network, why are they doing it with their wireless network? Won’t this mean that others will profit at their expense? Won’t they sell less phones in their local stores?
Last November, Verizon Wireless, a joint venture between Verizon Communications (VZ) and Vodafone (VOD), decided a radical shift was needed to generate new sources of revenue as the U.S. wireless market reaches saturation. About 80% of the U.S. population, or more than 250 million people, now use a cell phone. With the supply of first-time customers dwindling, Verizon chose a course it hopes will generate novel new phones and applications that can lure users from rivals or inspire existing subscribers to spend more money each month.
Whatever the reasons, Verizon faces a large internal challenge. It must alter its organizational character from one of introversion (tightly controlling access, disallowing outsiders) to extraversion (opening access to partners, allowing them to be creative outside of Verizon’s control). You could call this a ‘cultural shift’ as well. Verizon is an old, established corporation - and the older and more established you get, the more introverted you become. Their appeal to the FCC to rethink enforcement of the Telecom Act is classic introverted behavior - ‘protect the status quo at all costs.’ It takes a disruptive action - like a threatening competitor or the promise of a new venture - to energize introverted organizations to focus outward.
It’s also an acknowledgement that, just maybe, coming up with innovative new services isn’t Verizon’s forte. Perhaps their core competency is providing a robust network. Perhaps they will discover that others will create opportunities for new revenue streams they never dreamed of.
Still, skepticism abounds:
Among the biggest concerns: Verizon did not divulge any details of the pricing plans customers would be offered to use such devices. Nor did it publish any specifications to help software developers create applications for the network. In fact, the company distributed materials to attendees online, stressing that the company “will not approve, test, or service third-party applications that customers load onto their Open Development Devices.”
And despite numerous claims by Verizon executives that testing and certification for new devices could take as little as four weeks, many attendees are skeptical the process will be that easy. “I was most impressed with how they thought through the process,” says Bill Alberth, Motorola’s (MOT) chief technology officer for mobile devices based on CDMA, which is the wireless technology used on Verizon’s network. “But I want to see more details on testing.”
Google, already an extraverted company, would have no problem networking with partners in such a venture. Nor would their be such a level of skepticism from potential partners. Perhaps Verizon is doing this because they know Google could do it better, just by deciding to do so.
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